Messi Gives Modern Times Edge in Battle With Netflix

Modern Times Group AB’s Viaplay service streams European soccer with stars including Barcelona’s Lionel Messi as well as National Hockey League games in addition to movies and TV shows. Photographer: Pierre-Philippe Marcou/AFP via Getty Images

June 6 (Bloomberg) -- As video services vie for a foothold
in Europe’s fast-growing streaming market, global leader Netflix
Inc.’s Hollywood movies and shows are facing stiff competition
from a Swedish rival with an ace up its sleeve: live sports.

Modern Times Group AB’s Viaplay service streams European
soccer with stars including Barcelona’s Lionel Messi as well as
National Hockey League games in addition to movies and TV shows.
That helped it amass a subscriber base in the Nordic region
before its U.S. rival entered the market last year.

Viaplay is benefiting from the sports rights held by parent
MTG, a TV broadcaster, helping it obtain expensive content that
online-only providers such as Netflix typically choose not to
splurge on. Besides defending its home market, Viaplay is also
seeking to establish itself in more nascent streaming markets
including Russia and Ukraine before bigger rivals.

“Having sports is a key differentiator,” Niclas Ekdahl,
head of Viaplay, said in an interview from the company’s
headquarters in Stockholm. “It’s a premium offer and utterly
important in setting ourselves apart from competitors.”

Shares of MTG have gained 14 percent this year, giving it a
market value of 17.6 billion kronor ($2.7 billion). While MTG
doesn’t break out subscriber numbers or financials for Viaplay,
the “aggressive rollout” of the online service will drive the
company’s revenue growth, Rasmus Engberg, an analyst at Svenska
Handelsbanken AB in Stockholm, said in a May 17 research note.

Pricey Soccer

Sports, especially soccer, has traditionally driven demand
for pay-TV in Europe, with service providers spending billions
on the rights. Pay-TV companies are also expanding to online
offerings, with Germany’s Sky Deutschland AG winning rights last
year to offer Bundesliga soccer matches on TV, Internet and
mobile devices in a deal bringing more than $800 million a year
on average to the league through 2017.

Viaplay parent MTG has had TV customers in the Nordic
regions for years and set up the streaming service to complement
its older businesses, Ekdahl said. MTG helps Viaplay with its
content purchases and expansion plans, he said.

“Having a million pay-TV subscribers at our base from the
start made winning the rights to the Premier League and
Champions League, the NHL and so on easier,” Ekdahl said. “We
have a key ally in our corner backing us up and this is a key
reason why it’s good for us to nurture the relationship between
the old-pay versus the new-pay.”

Netflix Effect

Consumers are increasingly moving away from DVDs and
traditional TV offerings, flocking to applications on their
tablets and smartphones that allow them to sift through decades
worth of shows and movies at home or on the go. In October, MTG
forecast a decline for the Nordic pay-TV business and “fast”
growth for Viaplay.

While Viaplay had a head start, Netflix’s debut last year
helped energize the Nordic market and excite consumers by the
possibility of using their Internet-connected TVs, tablets and
smartphones to watch videos, Ekdahl said. The attention has also
benefited Viaplay, he said.

“We wondered in early October, before Netflix came out, if
the subscriber base would just erode, but the best thing, in
hindsight, was that Netflix came in and helped educate the
market,” Ekdahl said. “All of the sudden everybody is talking
about online subscriptions.”

Premium Price

In the first full quarterly earnings report after Netflix’s
launch, MTG said Viaplay “continued to report strong subscriber
intake and achieved record daily viewing figures around a number
of key sports events during the quarter.”

The sports content also enables Viaplay to charge a premium
for its service, Ekdahl said. The Viaplay package that includes
sports costs 249 kronor a month in Sweden. Netflix is 79 kronor.

To be sure, Viaplay’s success isn’t guaranteed. Netflix
shares have more than doubled this year as the company added new
shows and exclusive studio deals, making it almost five times
more valuable than MTG. Netflix spends more than $2 billion on
content annually, including its own productions such as the
political thriller “House of Cards” starring Kevin Spacey. The
Los Gatos, California-based company started its service for the
Nordic region’s 25 million people in October.

Time Warner Inc.’s HBO started its online service in the
region in late 2012, providing access to almost all its past and
current content from “The Sopranos” to “Game of Thrones.”
Amazon.com Inc.’s Lovefilm also provides a streaming service in
Scandinavia.

Russia Opportunity

MTG, controlled by Investment AB Kinnevik, the publicly
traded investment vehicle of Sweden’s Stenbeck family,
broadcasts more than 60 of its own branded channels in 36
countries, with a focus on Eastern Europe.

MTG started Viaplay in Russia in March 2012 and in Ukraine
this April, beating Netflix to those markets with almost 200
million people combined.

“Limited success for Viaplay in Russia could be worth 60
kronor per MTG share in ten years’ time, while great success
could mean 250 kronor a share,” Handeslbanken’s Engberg said.
The stock closed yesterday in Stockholm at 259.10 kronor.

Piggybacking on MTG’s free and pay-TV channels in other
Eastern European markets is Viaplay’s next step.

“Given where we’ve moved in the past, we have potential
eyes on the Baltic region, Czech Republic, Bulgaria -- all big
countries where we already have assets and there is a developed
Internet penetration,” Ekdahl said.